In Re Kliegl Bros. Universal Elec. Stage Lighting
Decision on Administrative Creditor’s Motion for Sanctions for Debtor’s Final Report and Application Seeking a Final Decree
Donovan Leisure Newton & Irvine
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(DLNI or Movant) seeks sanctions from Debtor’s counsel and former principal pur
I. HISTORY
The plan of reorganization of Kliegl Bros. Universal Electric Stage Lighting Co., Inc., (Kliegl) confirmed in 1992 resulted in an outsider, Richard Davisson, acquiring a controlling equity interest in the Debtor (Dec. 9 Tr. at 135 and 137-139, 162), an old-line highly respected manufacturer of stage and commercial lighting. Davisson is a well-educated and experienced investment broker and advisor who invests in what he described as a “diverse group of often start-up companies.” (12/9/97 Tr. at 5, 121-126.)
Kliegl was already in Chapter 11 when an investment banker who had previously done business with Davisson brought the Debtor to Davisson’s attention. (Id. at 127-128.) Davisson was attracted by the possibility of Kliegl’s obtaining lucrative contracts, 3 and his attraction led to a commitment. During the reorganization management was replaced by an operating trustee who was pressed by Davisson to propose a plan. (Id. at 137.) Under the plan ultimately filed by the Trustee, Davis-son became the principal investor, shareholder and director in the reorganized entity. (Id. Tr. at 142.) Kliegl’s disclosure statement provided that “Mr. Davisson shall fund, to the extent necessary, fees as allowed”, (12/9/97 Tr. at 11), 4 and at confirmation Davisson made a critical $150,000 capital contribution. 5 After confirmation Davisson continued to fund the reorganized debtor with additional cash. (12/9/97 Tr. at 41-43; 1/12/98 Tr. at 16.) However, when the anticipated new business failed to materialize (1/12/98 Tr. at 55), Kliegl ceased operations in November of 1996 (12/9/97 Tr. at 63) without having made all of the payments required by its confirmed plan. (12/9/97 Tr. at 163.)
On November 2, 1993, following a chamber’s conference initiated by DLNI, and while a decision on DLNI’s fee application was still pending, this Court entered an order directing Kliegl to deposit 3% of its monthly revenues into an escrow account pending a final decision on DLNI’s fee application, (the “Deposit Order”). (12/8/97 Tr. at 218, 317, 4KM12.) Kliegl’s compliance with the Deposit Order, however, was short-lived; payments ceased after several months (in or around June 1994) (12/9/97 Tr. at 35) resulting in DLNI receiving only $4,180.46. (Docket Doc. #235, Ex. 27.) No other payments were made to DLNI by Kliegl, (12/8/97 Tr. at 218) leaving DLNI as the reorganized debtor’s only major unpaid administrative creditor. 8
In October 1995, Kliegl’s first final report dated October 14 and first
ex parte
application dated October 16, 1995 seeking a final decree (the first application) were filed. Kliegl was then represented by Lawrence Gottlieb (Gottlieb),
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who states that he prepared the application at Davis-son’s request in order to remove the “stigma attached to being a Chapter 11 debt- or.” (12/8/97 Tr. at 221; 1/12/98 Tr. at 30-31.) Gottlieb maintains that he relied on Davisson’s representations that the state-
2. Pursuant to the Plan, substantial consummation was defined as the date that first distribution to Class 4 Claimants under the Plan were made.
3. First distribution payments under the Plan on account of the sole Class 4 Claimant, John Kliegl, have been made.
4. Allowed Administrative claims have been paid in full or pursuant to agreement.
5. Debtor’s Plan has been substantially consummated.
6. The estate is ready to be closed and a Final Decree effecting the same should issue.
(The full text of the final report and application is attached as an appendix to this decision.) No statement was made as to any payment schedule for various claims as required by the confirmed plan of reorganization. 11 (Docket Doc. # 235, Ex. 2.) And nothing in this first final report nor its accompanying first ex parte application made any mention of Kliegl’s failure to comply with an outstanding deposit order or of DLNI’s unpaid administrative claim. We denied this application to close the case because of a pending fee application of DLNI.
In late November 1995, Davisson met with DNLI to discuss Kliegl’s dire financial condition. Davisson claims to have offered Peter Lubitz the keys to Kliegl at one point. (1/12/98 Tr. at 37-39.) Several weeks later, a decision was rendered granting in full DLNI’s long pending application seeking nearly $150,000 in fees and expenses. Davisson claims that shortly after the release of the decision, DLNI denied the existence of the fee agreement and sought full payment of the fees awarded. (21/9/97 Tr. at 51; 1/12/98 Tr. at 40-41.) On January 16, 1996 Davisson faxed a letter to DLNI in which among other things, he stated his reluctance to continue Kliegl’s funding without assurances that DLNI would limit its claim for fees consistent with the Deposit Order:
I understand that this is an unpleasant subject for you. For me it [Davis-son’s involvement with Kliegl] is a disaster on its way to becoming a dead duck. However we might feel about the experience, I must ask again, as I did Thursday, “Are you prepared to honor the simple understanding of October 1992, without embellishments, or not?” Payroll [to be funded by Davisson or a member of his family] must be wired in by noon today or we have a 6 %o chance of a walkout tomorrow by our ten memberunion shop, followed not long after by our seven other employees. (Docket Doc. # 235, Ex. 25.)
Under date of January 19, 1996, by way of written response, DLNI indicated its non binding willingness to accept payments from Kliegl consistent with the deposit order without limiting its claim to such amounts as follows:
This letter confirms that, without waiver of any our rights or remedies and until otherwise noticed to you by this Firm, this Firm will accept payment from Kliegl Bros, amounts of fees and disbursements granted to us pursuant to Judge Holland’s December 28, 1995, decision (the “Award Amount”): (I) a lump sum payable forthwith equal to three percent of the gross revenues of Kliegl from the date of confirmation of the Chapter 11 plan to December 31, 1995, and (ii) three percent of Kliegl’s gross revenues in each month thereafter payable as soon as practicable in the following month until the entire Award Amount is received by us. (Docket Doc. #235, Ex. 26.) (Emphasis supplied.)
The parties differ as to whether DLNI had agreed to limit the amount of its administrative fee claim to the three percent of Kliegl’s monthly revenues mandated in the earlier mentioned payment order or whether DLNI had merely voluntarily engaged in a non binding accommodation. The only writing evidencing this agreement is the above letter.
The fact that by January 16, 1996 Kliegl was in extremis, 12 completely dependent on Davisson’s discretionary cash infusions and on its way to being a “dead duck” was noticeably -absent from a second final report and application seeking a final decree filed by Gottlieb on January 19,1996, after the decision on DLNI’s fee application had been rendered. This application, resubmitted at Davisson’s request, (12/9/97 Tr. at 64, 84; 1/12/98 Tr. at 47) was identical to the original. Again, the status of Kliegl’s unpaid obligation under the deposit order was not revealed (1/12/98 Tr. at 48), nor did the second application make any mention of the then still yet-to-be resolved dispute over DLNI’s fees or note that first payments to some creditors had not been made. The resubmitted ex parte application was granted, and the final decree was docketed in March of 1996.
Success in obtaining the final decree and removal of the Chapter 11 “stigma”, however did not help Kliegl. After scaling back operations and laying off employees, Kliegl staggered on until November, 1996 when it ceased operations. . Alone, Davis-son packed up Kliegl’s few remaining, assets consisting primarily of small equipment and drawings, and drove them to a warehouse near his residence in Maine. 13 (1/12/98 Tr. at 57-60).
The case remained dormant until May 15, 1997 when DLNI filled a motion seeking: (1) to reopen this Chapter 11 case, (2) compel compliance with orders directing payment of DLNI’s fees, (3) sanctioning Debtor and its responsible officers, directors, and principals for willful failure to comply with prior orders of the court regarding compensation,
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and (4) conversion
Davisson responded on two fronts: (1) on or about June 5, 1997, twenty-one days after DLNI’s motion to reopen, Davisson, caused a Chapter 7 petition to be filed for Kliegl in Maine, 15 (The Maine petition) having signed the petition and schedules as the President of Kliegl, and (2) Davis-son, still acting on behalf of the Debtor despite the Chapter 7 filing for Kliegl in Maine, had Gottlieb' file on behalf of Kliegl opposition to DLNI’s motion to- reopen.
The Maine petition and attendant papers, signed by Davisson and filed by Roger A. Clement Jr. of the law firm of Verril & Dana, stated that the Kliegl corporation was out of business and predicated venue in Maine on the assets Davisson had moved from New York. Davisson states that it was Verril & Dana who had advised him that he could file the Maine Chapter 7. (1/12/98 Tr. at 63-64). Notably, Kliegl’s Maine schedules, signed by Davisson, listed DLNI’s fees as a disputed claim. (1/12/98 Tr. at 68).
While the motion to reopen the original Kliegl case was pending, DLNI moved in this court pursuant to
At the conclusion of those hearings, we concluded that sanctions were warranted
II. DISCUSSION
A. Sanctions Under
The test for the imposition of
Final Decree & Standards
“Title
Precisely what constitutes “fully administered” for the purpose of
, “[t]he court should not keep the case open only because of the possibility that the court’s jurisdiction may be invoked : in the future. A final decree closing the case after the estate is fully administered does not deprive the court of jurisdiction to enforce or interpret its own orders and does not prevent the court from reopening the case for cause pursuant to§ 350(b) of the Code.”
Both the Rule and the- Note make clear that the decision as to whether a final decree is appropriate belongs to the court and not the debtor or debtor’s attorney — their responsibility, as the party in
The Advisory Committee Note to
The factors set forth in the Note are plainly an aid or checklist that serves to insure that there is no unfinished business before the Court or in the case.
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With this purpose in mind, it follows that an applicant seeking a final decree must— subject to the reasonable inquiry and improper purpose proscriptions found in
Even-with the factors sets forth in the Note, the meaning of “fully administered”, which is nowhere defined in the Code, the Rules or the Note, is somewhat elusive. We submit however, that at minimum, the concept must mean that administrative claims have been provided for at least to the extent that assets exist out of which administrative claims can be partly or wholly paid. While we have not been able to find a case specifically holding that “fully administered” requires that administrative creditors be provided for, we note that § 507(a)(1) administrative expenses are required by § 1129(a)(9) to be provided for in full in the plan as a prerequisite
The Kliegl estate could not have been fully administered so long as it still contained assets sufficient to make some payment on account of administrative claims unless those claims had been otherwise provided for. Even though these remaining assets were generally considered to be of doubtful value, we will not listen to Davisson assert their lack of any value in view of the fact that he transported them to Maine where he used them as the sole justification for that venue of the Maine case pursuant to
1. Gottlieb
Gottlieb asserts that the application and report seeking a final decree did not “run afoul” of the Bankruptcy Code. 18 (12/8/97 Tr. at 178) (Dkt.# 269). This conclusion can be supported only by a strained reading of the appropriate authorities. While the final report and application may not have contained outright misstatements, significant omissions therein, later discussed in detail, resulted in a highly skewed, if not intentionally misleading picture of the debtor. An examination of the papers and Gottlieb’s testimony reveals convenient assumptions and a consistent lack of judgment unerringly in favor of Davisson’s interests — the totality of which indicates that the omissions in Gottlieb’s application were the product of something more than inadvertence or mischance.
a. Substantial Consummation
At trial, Gottlieb steadfastly adhered to the erroneous position that substantial consummation was the exclusive requirement for obtaining a final decree. (12/8/97 Tr. at 233-5; 296, 298, 305-9, 357). While this may be consistent with the applications for a final decree that he drafted for Kliegl, it' is not consistent with the requirement set forth in both
This omission is very significant.
“The term ‘substantial consummation’ is used in two places in chapter 11” (7 Collier on Bankruptcy ¶ 1101.02.) (1) with regard to modification of a plan, and (2) in the context of attempts to dismiss or convert cases in which a plan has been confirmed.
Id.
It is not one of the enunciated prerequisites to the entry of a final decree. In defending his application, Gottlieb relies on case law that utilizes “substantial consummation” as an aide in determining compliance with the “fully administered” standard of § 350(a) and
b. Failure to Notify Court of Debtor’s Circumstances
Gottlieb was aware of Debtor’s perilous condition from his long experience with the Kliegl reorganization, yet he chose not to disclose this to the court.
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While one of the motives in seeking the decree may have been to remove from Kliegl the “stigma” of Chapter 11, clearly it was not the only, or even the primary one. Moreover, the application and “report” succeeded in its intended effect to mislead this court and frustrate the legitimate goals of DLNI. In signing and submitting the first, unsuccessful, application for a final decree seeking a closing of the case at a time when the fee application of DLNI was still
sub judice,
Gottlieb violated the provisions of
c. Failure to Conduct a Reasonable Inquiry
As noted above, an estate can not be fully administered while there are outstanding motions, contested matters, or adversary proceedings pending before the court.
See Matter of Wade,
Furthermore, the Final Report represents that “Allowed Administrative claims have been paid in full or pursuant to agreement.” Since Gottlieb knew that allowed administrative claims had not been fully paid (certainly at the time that he filed his first application when he was awaiting our decision on DLNI’s fee application, and in all likelihood at the time that he filed the second), explicit in his statement is the representation that such agreement actually existed. Gottlieb therefore placed both his reputation and his pocketbook on the line when he affirmatively represented it. He argues that information provided by Davisson, the Lubitz affidavit, and his vague independent memory of a pre-confirmation agreement furnished him with an adequate basis for his belief that there was an agreement between Kliegl and DLNI for purposes of the final report.
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Even if we give Gottlieb
While Kliegl’s continued survival (i.e. Davisson’s willingness to continue to fund Kliegl’s operations) was largely dependent upon either the existence of an agreement with DLNI or their continued forbearance, Gottlieb never took any steps to confirm that the arrangement was a binding agreement. (12/8/97 Tr. at 363) (see prior footnote discussing his familiarity with Kliegl). This failure to inquire about the existence of such assumed agreement was unreasonable and unwarranted given its crucial importance to the Kliegl entity. Moreover Gottlieb should have been doubly sure that the few representations set forth in the final report were ■ supportable. Gottlieb did not so much as even attempt to telephone DLNI. How can he be viewed as having performed a reasonable inquiry in filing the final application?
See Oliveri v. Thompson,
Gottlieb asserts that in view of his erroneous interpretation, no inquiry was needed except to insure that there was an initial -distribution and agreement. 12/8/97 Tr. at 285.
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(12/8/97 Tr. at 240) This conclusion has no greater validity than its premise particularly in view of the fact that he sought the case closing without notice to DLNI. Like the child who kills his parents and then asks for mercy on the grounds that he is an orphan, Gottlieb seeks mitigation on the grounds of a situation that he wrongfully placed himself into. Allegedly acting om an erroneous assumption of law, compounded by his failure to inquire, Gottlieb’s failure to notify deprived DLNI of the opportunity to oppose the case closing and to request instead a conversion to a chapter seven case which would have increased the likelihood of DLNI receiving a significant distribution on its claim.
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Proceeding upon a bonafide
d. Filing the Application and Report Ex Parte
The fact that the application was filed ex parte is also highly revealing. Gottlieb argues that no notice was required since a reorganized debtor does not owe any post-confirmation fiduciary duty to creditors. It is true that the bankruptcy rules do not require the application or motion for a final decree to be on notice, but the fact that Kliegl was then for all intents and purposes insolvent places an even heavier duty on the Debtor and compromises Gottlieb’s argument. This lack of notice had the expected and unjust effect of excluding any creditor, such as DLNI, that Gottlieb had reason to believe may have had good reason to object to the closing of the case. This exclusion could have been averted: either the final report could have disclosed the circumstances surrounding Kliegl’s grim prospects (and the dispute with DLNI) or it could have been fashioned as Collier’s suggests. See 11 Collier ¶ 6.01(3) (notice of a motion for a final decree “should be given to all persons affected, the trustee, if there is one, and such other persons as the court may direct”). In either case, this Court would then have been aware of the defaults and would have been able to determine whether or not interested parties should have been provided with notice. Instead, Gottlieb’s conveniently circumscribed approach to the application (from failing to mention controlling authority to filing the application ex parte) kept from this court of relevant information which conveniently deprived potentially interested parties of an opportunity to object to the application. 28 Misleading a court into believing that there is no controversy by depriving an adversary the opportunity to be heard is simply not to be condoned by any civilized judicial system.
Gottlieb’s behavior, by itself, however, was not the sole cause of DLNI’s long journey in attempting to get its fees paid. DLNI at that time was a capable and prestigious law firm. The application for order of final decree was refilled in March 1996 — the motion to reopen, including the sanctions being sought herein, was filed in the summer of 1997. In this time the Debtor faltered, and Davisson hauled (literally) its remains to Maine. DLNI had ample time to act against Kliegl and/or Davisson. A sophisticated law firm with a substantial outstanding administrative fee award can not claim to have been hoodwinked by the closing of the case. The entry of the final decree in of itself worked only minimal prejudice to DLNI — presumably limited to their expenses in seeking to reopen the case. What is more significant is what followed the filing of the application. This will be addressed in the discussion of Gottlieb’s vulnerability under
2. Davisson
The applicability of
To determine whether sanctions are appropriate with regard to Davisson individually requires an examination of his two separate roles: that of individual investor, and that of corporate secretary. Employed as an investment broker and advis- or, Davisson also invests in a “diverse group of start-up companies” with his own money. (12/9/97 Tr. at 126) That Davisson did not leave his job on the day after he obtained his controlling interest in Kliegl makes it clear that his motivation in investing in the Debtor was not to embark on a second career in the fighting industry. Having gained control of an admittedly marginal company, Davisson’s driving motivation was to keep the company afloat long enough to land — in the words of his own attorney at trial — the “big kahoona order” in hopes of getting a return on his investment. (1/02/98 Tr. at 326-327.)
Everything about Davisson’s involvement with the Debtor was calculated and carefully thought out to the end of benefitting only Davisson. During the reorganization, at a time that he was without authority to bind the Debtor, Davisson claims to have reached out to DLNI and negotiated a plan for the payment of DLNI’s claim in exchange for Debtor’s silence on DLNI’s fee application. In so doing, he ignored the fiduciary obligation owed by an officer of a debtor corporation in a title 11 proceeding to the creditors of the estate. To the extent that he in good faith believed he may have had grounds to object to the pending fee application, he had a duty to bring it to the attention of the court either in the form of asserting the objection or by seeking court approval of the alleged compromise after having provided the proper notice to the creditor body. Instead, he chose to use such information exclusively for his own purposes. At the time of confirmation, he had made his own personal limited representations to meet Kfiegl’s obligations. 30 Later, while keeping DLNI at bay with repeated threats to pull out of Kliegl, he signed the final report in his capacity as an officer of Kliegl notwithstanding his knowledge of DLNI’s pending fee application. And in an effort to blunt the effect of DLNI’s motion to reopen the Kliegl case and seek relief on its unpaid administrative claim, Davisson retained separate counsel to file a Chapter 7 petition for Kliegl in Maine (relying on the scant remaining debtor’s physical assets that he had hauled to Maine as the means to satisfy venue requirements), while he utilized Gottlieb in New York to oppose DLNI’s motion to transfer the case to this court. 31
Moreover, there was no statutory obligation or other compelling reason for the Debtor to have filed its final report at the time that it did, particularly since all of the representations prerequisite thereto could not then be bona fide made. On the other hand, Davisson was in a “heads I win, tails you loose” situation — he only stood to gain by closing the case. In the short term he ostensibly had removed the chapter 11 “stigma” from the Debtor, thereby increasing the likelihood that the Debtor would obtain the big order which could yield a positive return on his investment. The final decree also was sought as a roadblock to creditors such DLNI who had already threatened to take action on their claim. At a very minimum, both Kliegl and Davis-son benefitted from the final decree. Together with the benefits should go the burdens. Under these circumstances, we have no difficulty in interpreting “person” so as to include both Davisson individually as the “person” susceptible to
Only to the extent that any doubt may still remain as to Davisson’s vulnerability to
B.
1. Is the bankruptcy court a “court of the United States?”
Section 1927 , reads:
Counsel’s liability for excessive costs: Any attorney or other person admitted to conduct cases in any court of the United States or any Territory thereof who so multiplies the proceedings in anycase unreasonably and vexatiously may be required by the court to satisfy personally the excess costs, expenses, and attorneys’ fees reasonably incurred because of such conduct. (Emphasis supplied.)
Section 451 provides in relevant part:
The term “court of the United States” includes the Supreme Court of the United States, courts of appeals, district courts constituted by chapter 5 of this title, including the Court of International Trade and any court created by Act of Congress the judges of which are entitled to hold office during good behavior.
At the outset, we note that the statutory definition of “court of the United States” is non exclusive. Clearly, The Congress thereby indicated its intent for that term to embrace courts in addition to those enumerated, although the statute itself does not indicate the outside limits of what that term may encompass.
Two circuits courts of appeal confronted with the issue of whether a bankruptcy court is a court of the United States for purposes of
In conducting their analysis of § 451, the Courtesy Inns and Volpert courts looked to the following factors: (1) that bankruptcy courts are not listed explicitly in § 451; (2) that bankruptcy judges are constituted under chapter 6 rather than chapter 5 of Title 28; (3) that the “entitled to hold office during good behavior” language excludes bankruptcy judges who serve a specified fourteen year term; and (4) that an enacted amendment to the Bankruptcy Reform Act of 1978 explicitly adding bankruptcy court to the § 451 definition, was repealed prior to its effective date.
Volpert,
Volpert relied heavily upon the reasoning contained in Perroton, a significant factor of which was the effect that it gave to Congress’ aborted attempt to include the bankruptcy court within the meaning of “court of the United States” in
With due respect to the 9th Circuit, while Congress’ revocation of the yet to become effective amendment to
The Second Circuit in
Baker v. Latham Sparrowbush Assocs. (In re Cohoes Indust. Terminal, Inc.),
[a] bankruptcy court may impose sanctions pursuant to28 U.S.C. § 1927 if it finds that “[an] attorney’s actions are so completely without merit as to require the conclusion that they must have been undertaken for some improper purpose or delay.”
The language cited by the Second Circuit came from
Oliveri v. Thompson,
The second paragraph of the Court of Appeals Cohoes decision states: “On this appeal, we address whether
a court
may assess sanctions ...,” (Emphasis supplied) and in neither the bankruptcy nor the district court decision is there a discussion of the authority of a bankruptcy court to impose sanctions under
Finding neither binding authority, persuasive precedent nor compelling necessity to answer our first question, we move on.
2. Is the bankruptcy court authorized to exercise the powers given to a district court as a court of the United States, so denominated by§ 451 ?
28 U.S.C. § 1334(a) states:
Except as provided in subsection (b) of this section, the district court shall have original and exclusive jurisdiction of all cases under title 11.
28 U.S.C. § 151 states in pertinent part: In each judicial district, the bankruptcy judges in regular active service shall constitute a unit of the district court to be known as the bankruptcy court for that district. Each bankruptcy judge, as a judicial officer of the district court, may exercise the authority conferred under this chapter with respect to any action, suit, or proceeding and may preside alone and hold a regular or special session of the court, except as otherwise provided by law or by rule or order of the district court.
28 U.S.C. § 157(a) provides:
Each district court may provide that any or all cases under title 11 and any or all proceedings arising under title 11 or arising in or related to a case under title 11 shall be referred to the bankruptcyjudges for the district. The United States District Court for the Eastern District of New York has so referred such title 11 matters to this bankruptcy court. (See the appendix to Acolyte Electric Coiji. v. City of New York, 69 B.R. 155 (1986).)
Even if this court were not a court of the United States under
In addressing matters arising within our statutorily circumscribed core'jurisdiction, bankruptcy courts clearly have need of
The fundamental problem with denying to the bankruptcy courts
While this Court acknowledges its inherent powers (and as evidenced by this
We acknowledge the contrary majority. However, in view of the fact that the question is open in this circuit, and since the majority predicates its analysis upon the assumption, erroneous in our humble and respectful opinion, that
3. Is
The
Volpert
Court recognized the need for a bankruptcy court to possess the authority to address the problems anticipated by
However a close reading of
While this Court is quick to acknowledge that it is a court of narrowly defined jurisdiction, we nevertheless believe that Congress gave this Court the jurisdiction to address these types of issues at least under the facts of this case. To the extent that any reviewing court chooses not to adopt this analysis, we reluctantly assert our inherent authority to address Gott-lieb’s behavior.
2. Analysis of Gottlieb’s Conduct Within the Context of
By obtaining the final decree and opposing DLNI’s motions, Gottlieb engaged in conduct that unreasonably and vexatiously multiplied the proceedings in this case. For the reasons set forth above in connection with
III. CONCLUSION
At the close of the hearing in this matter, this Court made a threshold as to the sanctionability of respondent’s conduct. A further hearing is now necessary to resolve several final matters: the ability of Davisson and Gottlieb to shoulder sanctions, the extent of appropriate sanctions, and an how those sanctions should be equitably apportioned.
A hearing will be set by the judge to whom this case will be transferred. Appropriate notice shall be given of the time, date, and location of such hearing.
It is So Ordered.
APPENDIX
FINAL REPORT OF SUBSTANTIAL CONSUMMATION PURSUANT TO FIRST AMENDED PLAN OF REORGANIZATION OF KLIEGL BROS. UNIVERSAL ELECTRIC STAGE LIGHTING CO., INC.
TO: THE HONORABLE MARVIN HOLLAND
UNITED STATES BANKRUPTCY JUDGE:
Kliegl Bros. Universal Stage Lighting Co., Inc. (“Debtor”), by its attorney Lawrence Gottlieb, Esq., respectfully sets forth and shows: ■
1 A First Amended Plan of Reorganization dated June 12, 1992, as amended (“Plan”), filed herein by the Debtor, was confirmed pursuant to order of this Court dated October 2, 1992 (the “Confirmation Order”).
2 Pursuant to the Plan, substantial consummation was defined as the date that first distribution to Class 4 Claimants under the Plan were made.
4 Allowed Administrative claims' have been paid in full or pursuant to agreement.
5 Debtor’s Plan has been substantially consummated.
6 This estate is ready to be closed and a Final Decree effecting the same should issue.
Dated: White Plains, New York
October 16,1995
LAWRENCE M. GOTTLIEB, ESQ. Attorney for Kliegl Bros.
Universal Electric Stage Lighting Co., Inc., Debtor /S
Dated: Cape Elizabeth, Maine October 14,1995
KLIEGL BROS. UNIVERSAL ELECTRIC STAGE LIGHTING CO., INC.
/S
RICHARD DAVISSON, Secretary
APPLICATION FOR ORDER OF FINAL DECREE FOR KLIEGL BROS. UNIVERSAL ELECTRIC STAGE LIGHTING CO., INC. CASE NO. 191-13001-352
TO: THE HONORABLE MARVIN HOLLAND
UNITED STATES BANKRUPTCY JUDGE:
Kliegl Bros. Universal Stage Lighting Co., Inc. (“Debtor”), respectfully moves for an order of Final Decree and represents as follows:
1 The Debtor’s plan of reorganization was confirmed pursuant to an order of this Court dated October 2,1992.
2 As defined by § 1101(2) of Title 11, United States Code (“Bankruptcy Code”), substantial consummation entails a transfer of all or substantially all of the property proposed by the Plan to be transferred; assumption by a debtor or by the succes-
sor to a debtor under the plan of business or the management of all or substantially all of the property dealt with by the plan; and commencement of the distribution under the plan.
3As evidenced by the final report of substantial consummation, a copy of which is made a part hereof, substantial consummation, as that term is defined by § 1101 of the Bankruptcy Code, is complete. It is respectfully submitted that this case may be closed.
WHEREFORE, the Debtor respectfully prays that this Court enter a final decree together with such other, further and different relief as this Court may deem just, proper and equitable in the premises. Dated: White Plains, New York October 16,1995
LAWRENCE M. GOTTLIEB, ESQ. Attorney for Kliegl Bros.
Universal Electric Stage Lighting Co., Inc., Debtor /S
Notes
. Since this matter was heard by the Court, DLNI has disbanded. (See, N.Y.L.J. 4/17/98, p. 1, col. 1.)
.
. See 1/12/98 Tr. at 30-31 ("Kliegl believed it was on the verge of earning a very large order from the Dormitory Authority in [sic] the State of New York. That was one of the reasons for financing it through the Chapter IT'); 12/9/97 Tr. at 47 ("We lived through the whole period of the company believing there was a single series of large orders just around the comer, and that was the rationale for keeping it alive").
. A letter from Davisson to the Trustee provided: "This will confirm that I am prepared and intend to fund Kliegl Brothers cash requirements at confirmation as allowed and its operating needs according to the forecast contained in the Plan [sic] long as sales and margins contained therein are attained.” (Mov.’s Ex. 1, Ex. I to the Disclosure statement) (12/9/97 Tr. at 139). This representation was bolstered by a letter referred to in the Kliegl disclosure statement from Davis-son’s Certified Public Accountant stating: “In my opinion, Richard Davisson has the ability and liquidity to finance the obligation under the plan to reorganize Kliegl Brothers ...” (12/8/97 Tr. at 177.)
. The Plan was confirmed on October 2, 1992. (Docket Doc. # 159.)
. The grounds for Kliegl’s opposition would have been DLNI’s alleged conflict of interest addressed by this court.
See In re Kliegl Bros. Universal Electric Stage Lighting Co., Inc.,
. Although unarticulated as such, Davisson's position appears to be that DLNI agreed to cap its entitlement at the three per cent amount. DLNI’s unarticulated position seems to be that DLNI, as a non-binding accommodation to Kliegl, "at will,” would accept monthly payments at the three per cent rate but only until further notice by DLNI. This position is supported by the only written evidence of the agreement, a January 19, 1996 letter from Edward F. Cox, a DLNI attorney.
. While the record is unclear, Peter Lubitz, in a letter to Kliegl seeking compliance with the deposit order, identifying DLNI as the only unpaid administrative creditor. (Docket Doc. 235, Ex. 16 .)
. Davisson retained Gottlieb to represent Kliegl because Gottlieb had been an associate in the law firm of Marc Stuart Goldberg & Associates which had represented the trustee during the Chapter 11 case. (1/12/98 Tr. at 80-82.) Goldberg had" been Kliegl’s trustee and had proposed the plan of arrangement that was ultimately confirmed. Gottlieb had actively participated in the case by assisting in the drafting of the disclosure statement. (12/8/97 Tr. at 172, 174, 207.) In December 1993 Gottlieb went on to form an "of counsel” relationship with Kurtzman Haspel & Stein where he provided services to Kliegl (12/8/97 Tr. at 278-9, 339) on matters relating to the Kliegl lease and opposing an attempt by John Kliegl to convert or dismiss the case. (12/8/97 Tr. at 280-1; Docket Doc. # 235, Ex. 34) At some point in 19-9&, after Gottlieb had gone on to-open his own practice, he again represented Kliegl (12/8/97 Tr. at 279-281, 12/9/97 at 43, 1/12/98 Tr. at 30, 79; Docket Doc. # 235, Ex. 25) and prepared the final reports and applications to close the case. (12/8/97 Tr. at 282, 284; 12/9/97 at 43). Davisson stated that he never retained Gott-lieb personally. (1/12/98 Tr. at 80.)
.
. Article V of the Plan set forth treatment of claims and interests. General Unsecured claims (Class 6 creditors), for example, were "to be satisfied by periodic payments of cash which shall be in an aggregate amount equal to fifteen (15%) percent of an Allowed Class 6 Claim, of which two and one-half (2 ji%) percent shall be distributed in cash thirty days following the Effective Date,” with similar 2ji % payments at later defined intervals. "Effective Date” is defined in the plan as "the first Business Day after the Confirmation Order has become a Final Order.” The final report and Gottlieb’s application are silent as to whether any payments, aside from the payment to John Kliegl (which was all that was required under the Plan to reach substantial consummation), were made.
. Davisson’s fax dated January 16, 1996, also pointed out that Kliegl owed "well over $1 million in claims to the landlord, various taxing authorities and creditors — some of whom are suing now to collect. Shame on me for seeing an opportunity where there wasn't one.”
. Davisson however, had stayed busy during the summer of 1996. While apparently still an officer of the apparently insolvent corporation, (he later signed Kliegl’s Chapter 7 petition as president) Davisson unsuccessfully attempted to assign his claims against Kliegl to a related entity — "Kliegl Lighting” — in order to foreclose on his interest in the Debtor, but the effort was unsuccessful because the assignments were ineffective.' (1/12/98 Tr. at 54, 71-72.) It is unclear whether Davisson understood that his claims (and those of his family members) were subordinate to the claims of Kliegl’s administrative and general unsecured creditors. (Id.)
.DLNI’s original motion to reopen the Chapter 11 sought sanctions • only ' against Kliegl and its principals for Debtor's failure to abide by the deposit order. (Docket Doc.
. The timing of the Chapter 7 filing on June 5, 1997, is significant. After Kliegl ceased operating in November 1996, Davisson had responded to collection letters from Kliegl’s creditors by telling them that the business was no longer operating. (1/12/98 Tr. at 61).
. While recognizing that the list in the advisory note is nonexclusive, at least two courts have given a narrow interpretation to the list by observing that the list "is indicative that the only preconditions to entry of a final decree are those relating to the plan and/or the order of confirmation.”
In re Precision Auto-craft, Inc.,
.
Except as provided in section 1410 of this title, a case under title 11 may be commenced in the district court for the district—
(1) in which the domicile, residence, principal place of business in the United States, or principal assets in the United States, of the person or entity that is the subject of such case have been located for the one hundred and eighty days immediately preceding such commencement, or for a longer portion of such one-hundred-and-eighty-day period than the domicile, residence, or principal place of business, in the United States, or principal assets in the United States, of such person were located in any other district; or
(2) in which there is pending a case under title 11 concerning such person’s affiliate, general partner, or partnership.
. Notably, these papers deviate from the form proposed in Collier, the use of which would have provided a much more complete picture. We are unaware of any well respected treatise in general use in this district that contains forms consistent with Gottlieb's position or with his papers.
. As an indication of the importance given to the requirement that case closing follow full administration, we note that this appears to be the only instance of such a requirement that is contained in both the statute and the rules in virtually identical language. No other mandate appears to have been given such repeated emphasis.
. See page 1 of the 1999 pamphlet supplement to 11 West’s United States Code Annotated entitled “Bankruptcy Forms” and for a more detailed history of form 33 which contains the above quoted language, see the discussion entitled "Official Forms” at page lxii of Norton Bankruptcy Law and Practice 2d., Bankruptcy Rules.
. For example, the application fails to discuss cases like
Westridge v. Chestnut St. Condominiums, Inc.,
. One of the bankruptcy court decisions relied upon by Gottlieb to justify the character of his application and report
{See
12/8/97 Tr. at 309; 1/12/98 Tr. at 265-6; and Gottlieb’s Mem. of Law in Oppos. to Mot. Seeking Imposition of Sanctions, Docket Doc. # 269 .) is
In re Jordan Manufacturing Company, Inc.,
.See n. 9, infra. Gottlieb was familiar with Kliegl from the time of its reorganization from his work on the case as an associate in the firm that served as counsel to the operating trustee.(12/9/97 Tr. at 69). (Davisson.) Moreover, Gottlieb was retained post-confirmation to not just file the final decree, but had first worked directly for Kliegl on matters including significant post-confirmation "rent” issues. (See 12/8/97 Tr. at 282.) (with Goldberg?) Even Davisson believed that Gottlieb — who Davisson once referred to as the Kliegl "company attorney” (1/12/98 Tr. at 30) — had to have been aware of Kliegl’s perilous straits because of Kliegl’s "own difficulty paying Mr. Gottlieb’s bills.” (12/9/97 Tr. at 69.) Davisson candidly admits to stringing Kliegl along in hopes of landing the big order and also readily admits that many of the initial payments required under the plan were not made. (12/9/97 Tr. at 163) (Compare with final report). From this exposure Gott-lieb had to have been aware of Kliegl's dim prospects given Davisson’s clinical, single-minded approach to the business.
. The last sentence of the version of
If a document is signed in violation of this rule, the court on motion or on its own initiative, shall impose on the person who signed it, the represented party, or both, an appropriate sanction, which may include an order to pay to the other party or parties the amount of the reasonable expenses incurred because of the filing of the document, including a reasonable attorney’s fee. (Emphasis supplied.)
. Gottlieb’s claim that he "ascertained that there was an agreement” (12/8/97 Tr. at 284) is undermined by the facts and his own testimony: information provided by Davisson: 12/8/97 Tr. at 262, [266, 349] (informed of agreement by Davisson) (269 at 5) (relying on unsigned letter — 12/8/97 Tr. at 212, which he believed had been signed. Tr. at 213); seeing and relying on the Lubitz affidavit: (12/8/97 Tr. at 210, and 212); recalling the transaction from the time of his employment with the Trustee: 12/8/97 Tr. at 209, 248, 333. Also, Gottlieb testified that he believed that the 3% deal worked out with the court was the product of the original oral agreement. 12/8/97 Tr. at 320. Gottlieb’s alleged belief is belied, however, by the specific wording of the Cox letter, Supra, which states that the pay out over time would continue only "until otherwise noticed to you by this firm ...” See above, page 9.
. Gottlieb felt that Kliegl's failure to pay was not material to the court closing the case. 12/8/97 Tr. at 353, 357. He asserted that substantial consummation occurred upon an initial distribution to the Class 4 creditor, John Kliegl. 12/8/97 Tr. at 275-277 (277 citing to plan).
. Gottlieb's conduct deprived DLNI of the opportunity to oppose the case closing and to request instead a conversion to a chapter seven case in which DLNI would have been afforded the opportunity of seeking a disgorgement proceeding in which all chapter 11 administrative creditors could have been required to share proportionately in any administrative shortfall. A possible motive may have been the vulnerability not only of Gott-lieb but also of his former employer, the former trustee to such an apportionment procedure. However, since DLNI has chosen not to raise this issue, neither will we.
. Moreover, since "[t]he Code and the rules do not specify when a case has been fully administered,” (9 Collier ¶ 3022.01), Colliers advises that "[t]he motion should show compliance with the confirmed plan and all orders relating to its consummation,” 11 Collier ¶ 6.01(3), and that notice "should be given to all persons affected, the trustee, if there is one, and such other persons as the court may direct.” This is a prudent recommendation since such notice provides the court with the added safeguard that it will receive accurate information sufficient to make its analysis in deciding whether to order the entry of the final decree.
.
. When asked at trial whether he had committed to an absolute funding commitment to the cash requirements of Kliegl at the time of confirmation, Davisson responded: “As long as [Kliegl] met its sales and margins’ projections.” (12/9/97 Tr. at 139.)
. There have been neither allegations nor evidence as to the extent to which Davisson may have been aware of the different order of priority afforded to DLNI’s unpaid administrative fee claim in a) the about to be closed confirmed Chapter 11 case, b) a Chapter 7
. A bankruptcy court also has the inherent power to sanction.
Fellheimer, Eichen & Bmverman, P.C. v. Charter Technologies, Inc.,
.
. Nevertheless,
Cohoes
has been relied upon for the above quoted proposition. See
In re French Bourekas, Inc.,
.
.
. See note 32 above.
. The
Volpert
court attempted to dispatch the Novelty Textiles Mills approach by looking to § 1927’s predecessor.
Volpert,